A finance broker believes the government needs to rethink its property price caps for the big cities in its proposed first home buyer scheme.
Last month, the government sought feedback for its First Home Loan Deposit Scheme.
The proposal would support as many as 10,000 buyers a year, and to qualify, a single person would have to earn less than $125,000 and a couple needs a joint income of less than $200,000.
It would mean first home buyers would need as little as a 5 per cent deposit. But the value of the property is capped, depending on the location.
Zippy Financial director Louisa Sanghera thinks the government needs to lift the cap in Melbourne and Sydney, or first home buyers there will just waste their time trying to use the scheme.
The maximum cap in Sydney under the scheme is $700,000 and it is $600,000 in Melbourne.
“What I’m scratching my head about is that the scheme was clearly well intentioned, with Sydney and Melbourne would-be property owners top of mind because of the high property prices in both cities,” Ms Sanghera said.
“Yet, now the price caps have been set so ridiculously low in these capital cities that most buyers won’t qualify anyway or, worse still, will end up buying a cheap and inferior property which may cost them far more in the long run.”
The October CoreLogic Home Value Index revealed the median house price in Sydney is about $920,000, and the median unit price is $720,000.
While in Melbourne, the average price for a house is $751,000 and a unit is $558,000.
“The price caps have been set well below the median house prices in both Sydney and Melbourne, with the median unit price in Sydney even above the maximum price allowed under the scheme,” Ms Sanghera said.
“However, in all other capital cities, the price cap is much closer to the median house price, and well below the median unit price, in these locations.
“It does seem that the government has just picked a price out of thin air for Sydney in particular, because it doesn’t seem to reflect market reality — especially now that prices are firmly there again.”
Although Ms Sanghera is critical about the caps for Melbourne and Sydney home buyers, she does see value in this scheme helping first home buyers. However, she thinks the 10,000 limit will be hit quickly.
“To put this in perspective, there were just shy of 10,000 first home buyers in September, according to the Australian Bureau of Statistics, so the scheme could be here one month, gone the next, from the start of next year,” she said.
“If the government is serious about helping first home buyers, and I believe they are, they should seriously consider increasing the price caps in Sydney and Melbourne to be more realistic of current market conditions as well as significantly boost the number of guarantees on offer.”